High import duties on foreign cars and unfavorable policies on the domestic auto industry are leaving few affordable options for car buyers in Vietnam.
A Hyundai i10 sedan imported from India arrives in Vietnam at the average price of only VND84 million (US$3,750), according to Hyundai-Thanh Cong, the authorized dealer of the South Korean carmaker in Vietnam.
The five-door hatchback is among the best-selling Hyundai models in Vietnam, with Hyundai-Thanh Cong sales topping 20,000 units in 2016, a company representative told Tuoi Tre (Youth) newspaper.
However, despite the car’s cheap import price, its retail price may be as high as VND350 million - 450 million ($15,625-$20,090) due to an import tax of 70 percent and other duties and expenses that added to the cost, the representative said.
While taxes imposed on foreign cars are high, the domestic auto industry has been slow to seize the opportunity to gain a foothold in the affordable car market segment.
In fact, the leader of Vinaxuki, once considered a giant in Vietnam’s auto industry, has at one time unveiled his vision to manufacture affordable cars for the Vietnamese people.
The ambitious leader invested in a costly manufacturing complex and hired Japanese experts to take care of the designs, but his risky venture soon plunged into unrecoverable losses that led to the closing of the factory and a huge debt on his part.
Some experts have attributed Vinaxuki’s failure to the fact that the condition in Vietnam is only suitable for car assembly rather than manufacturing from scratch.
One official at the Industrial Policy and Strategy Institute under Vietnam’s Ministry of Industry and Trade has acknowledged that “the safest path for [domestic] auto companies now is to import from foreign manufacturing countries”.
Withdrawal of foreign carmakers
Earlier this week, the chief representative of the Ho Chi Minh City office of the Japan External Trade Organization (JETRO) said that Japanese carmakers might leave Vietnam for other regional markets to improve profit, citing Vietnam’s unsatisfying production capacity compared to its regional peers such as Thailand and Indonesia.
In 2016, Vietnam produced around 400,000 cars, while its neighbors Thailand and Indonesia made 2.3 million and 1.5 million cars, respectively, according to EU-ASEAN Business Council.
Thailand is expected to reach a yearly production of 3.4 million cars in 2023, while the Philippines and Malaysia is forecast to emerge with 800,000 and 700,000 cars respectively by that year.
Meanwhile, Vietnam’s car production is forecast to drop to 300,000 cars in 2020 before bouncing to 500,000 in 2023, according to the same source.
According to a representative of Japanese automotive manufacturer Toyota, which has assembly lines in Vietnam, production numbers of its Vietnam factory is relatively low while the costs to source locally produced components are even higher than to have them imported.
Meanwhile, the trend of companies opting to import cars instead of having them manufactured or assembled in Vietnam is putting government policies on the auto industry under the question.
According to an official at the Ministry of Industry and Trade, there was a sudden high demand for multipurpose SUVs in Vietnam during the 2008-09 period.
But instead of introducing favorable taxes to encourage domestic production, Vietnam’s policymakers at the time decided to raise taxes on the industry, causing foreign brands to relocate their factories to Indonesia.
“Up until now, the Vietnamese government says it is doing its best to facilitate cars production but has yet to introduce any concrete policy on the issue,” the official said.
There will be an estimated 33 million people belonging to the middle class in Vietnam in 2020, according to Dr. Le Anh Tuan, head of the research unit at Dragon Capital asset management foundation.
The expansion of Vietnam’s middle class is expected to improve the country’s cars consumption in the years to come, provided that local policies are relaxed to allow for the growth of affordable auto production.